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Blog readers may be interested in a recent op-ed from former OMB Director Peter Orszag advocating for privatization of the nation's air traffic control system. See Peter Orszag, Private Air-Traffic System Can Soar, Bloomberg Business Week, Sept. 21, 2011 (available here). The notion of freeing air traffic control from the uncertainty of government funding disputes has been on the political radar since at least 1993, when it received prominent mention in the Baliles Commission's recommendations for strengthening the airline industry. Orszag, much like the Baliles Commission, proposes creating a nonprofit entity/government corporation to take over air traffic control. Given the political difficulties that have held up progress on the GPS-based NextGen air traffic control system since the time of the commission, privatization is a debate that is at least worth revisiting.

Air Transport World reported earlier today that the Chilean antitrust tribunal TDLC had conditionally approved the merger between Chile's LAN airlines and Brazil's TAM. See Aaron Karp, LAN, TAM Gain Conditional Antitrust Approval for Merger, Air Transport World, Sept. 22, 2011 (available here). The two carriers would combine to form LATAM Airlines Group. It will be worth watching how the merger impacts the major transnational alliances as LAN currently belongs to oneworld while TAM is a member of Star Alliance. The TDLC made withdrawal from one of the alliances a condition of approval, though the two airlines have yet to agree to TDLC's conditions.

Blog readers may be interested in Michael E. Levine's new paper, Regulation and the Nature of the Firm: The Case of U.S. Regional Airlines (Journal of Law and Economics, Forthcoming; NYU Law and Economics Research Paper No. 11-24, July 18, 2011) (available from SSRN here). From the abstract:

In his pathbreaking article, Ronald H. Coase postulated that the structure of production was determined by the comparative advantage between contracting and hierarchy in securing and coordinating complementary resources (human or material) when the efforts of more than one person were required for production. While Coase considered the possibility that the regulatory context in which activity takes place might also influence the way it is structured, he considered the problem only very generally. This paper suggests that airline deregulation has profoundly affected the structure of firms that operate airline networks by affecting the contractual conditions under which airlines purchase labor inputs, by removing constraints on the extent and nature of the firm’s route network and by changing the competitive environment in which airline firms operate. Where a stable uniform firm structure existed under regulation, airline networks now are organized with a variety of firm structures and individual networks have changed as particular conditions have changed over time. No single structure dominates, although some are more common than others.

An article from Reuters today suggests that the ongoing financial difficulties in Europe could pose problems for the aviation industry which relies heavily on French and German banks for the financing of aircraft purchases. See Tim Hepher, French Bank Retreat Raises Aircraft Finance Fears, Reuters, Sept. 20, 2011 (available here). According to the article, the market for second-hand aircraft is more likely to be affected than the market for new aircraft. Of course, one way to lower financing costs would be to eliminate the nationality rule and allow airlines freer access to global capital as discussed in The Emerging Lex Aviatica 42 Geo. J. Int'l L. 639 (2011) available here.

In a September 13 press release, the U.S. DOT, FAA, and Australia's Department of Resources, Energy and Tourism announced a Memorandum of Understanding between the agencies to cooperate on developing clean and sustainable aviation fuels. See FAA press release available here. The agencies will share information and costs and conduct joint research into the viability and effectiveness of alternative fuel sources and programs. While the agreement is a far cry from the types of multinational compacts that will be required for significant progress on reducing aviation emissions, any attempts at international cooperation are encouraging to the extent that they demonstrate a recognition by the contracting states that emissions are a problem facing the global aviation industry, and one that will likely be solved more quickly through multistate efforts.